From the TUC

Collective Bargaining and Low to Middle Earners

27 May 2011, by in Economics

We had an interesting couple of hours at the Resolution Foundation this morning, trying to address the problem of falling living standards for low and middle income earners. The foundation’s report, ‘Growth without gain?’, which was launched today, pulls no punches in highlighting the scale of the problem. Over the course of the coming months, the Commission on Living Standards, established by the Resolution Foundation to explore this problem, will be seeking answers.

‘Growth without gain?’ points out that whilst less chronic than in the US, where median earnings have been stagnant for a generation, leading economies such as the UK, Germany and Canada have seen median wages either remain stagnant or falling during long periods of growth, prior to the 2008-09 global recession. However, other OECD countries, including Australia, France, Sweden and Norway have experienced better wage performance, suggesting there are lessons that countries like the UK can learn.

Wage stagnation has many consequences. Inflation hits people on low to middle incomes disproportionately, for example. And before the financial crisis, 30 per cent of people on low to middle incomes buying their first home relied on 100 per cent mortgages; despite falling interest rates, the burden of mortgage repayments on these people has been rising, not falling.

‘Growth without gain?’ describes the anaemic economic performance that often follows recessions characterised by credit crises. It says, “today’s defining political challenge is framed simply in terms of securing a steady recovery”. I agree, although I’m not sure the Coalition sees it that way. For them, cutting the deficit remains priority number one, in spite of evidence almost daily that this is sucking the lifeblood out of the economy.

After opening presentations at this morning’s launch, I had the opportunity to put in my two penn’orth, so I raised the decline of collective bargaining. I quoted the ILO’s Global Wage Report for 2010-11, which describes how a one per cent increase in the annual GDP per capita translates into average wage growth of 0.87 per cent in countries with superior collective bargaining systems, compared to wage growth of only 0.65 per cent in countries with weak coverage.

Steve Machin of the London School of Economics replied that about 15 to 20 per cent of wage stagnation was caused by the decline in collective bargaining. Whilst it wasn’t the most important factor, this was a high percentage for simply one factor. Diana Coyle agreed with the importance of unions, although she argued that we hadn’t bargained for women as well as we had bargained for men. I’m not about to argue that unions could never do better and if this is true, we must improve. Of course, we were one of the loudest – sometimes loneliest – voices in calling for a National Minimum Wage, which has disproportionately benefited women, so there’s much for us to be proud of.

What is becoming more and more clear to me is the need, in the post-crash economy, for a better balance of influence among civil society institutions, including unions. There was much talk this morning of a more responsible, better capitalism and we can all sign up to this. But bringing that better capitalism about will require an understanding that many stakeholders must have influence over the future development of the economy. Relying on altruism among business won’t work. Will Hutton argued for a proud, feisty trade union movement, bargaining on behalf of its members, even describing this as a “noble” pursuit.  The days of blindly assuming that the voice of business is the only one necessary must surely be put behind us.

One Response to Collective Bargaining and Low to Middle Earners

  1. The Friendly Lefty
    May 31st 2011, 10:44 am

    A good article, Tim, thanks for sharing.

    One plea I would make however is that we stop saying things such as:

    “For them, cutting the deficit remains priority number one, in spite of evidence almost daily that this is sucking the lifeblood out of the economy.”

    I believe this is to fall into the government’s trap whereby reducing the deficit is counterposed to an active growth policy. In fact, what we should be hammering home all the time is that there are different ways to go about cutting the deficit. One of those ways, being tested by the current government, to severely cut back on public spending, is failing. At least, currently it has no signs of success. Another way to cut the deficit would be to stimulate economic growth, create jobs etc – the kind of policies you and others have been calling for.

    In this sense deficit reduction is a by-product of an investment-led recovery that prioritises maintaining working people’s standard of living.

    By posing the matter in this way, you

    a) win over people who believe it is important to have an economic policy that reduces the deficit;
    b) proves current government policy counter-productive in achieving this;
    c) demonstrate that there is a viable alternative and that the pain ordinary people are being made to suffer is not only unnecessary but harmful for recovery.